Jollibee Struggling to Expand in U.S.

Jollibee, the biggest fast-food chain in the Philippines, came to California four years ago with hopes that its pineapple-topped burgers and spaghetti-and-hot dog concoctions would fuel a rapid U.S. expansion.

But with just eight stores in California, Jollibee has only half the restaurants it expected to have by now, and Jollibee Foods Corp. officials said per-store sales are 30% below projections.

Although Jollibee has been a hit with Filipino immigrants, restaurant industry experts say the company has struggled to reach mainstream fast-food customers. With a limited marketing budget and only a handful of stores, few outside the Filipino American community know the chain.

Then there's the food. Some say the chain's Filipino-inspired sweet-and-spicy meals are too exotic and its American-style offerings lack distinction.

"It really isn't that much different from what you'd find at a big banquet that wasn't well catered," said Hal Sieling, a Carlsbad restaurant consultant who recently ate at a Jollibee near San Diego.

"For somebody who's grown up on traditional fast food like Burger King and McDonald's, Jollibee might be too unusual," said Randall Hiatt, president of Fessel International, a Costa Mesa-based restaurant consulting firm. "It's a tough sell."

Jollibee executives acknowledge some disappointment at the chain's reception. But they think Jollibee's variety of menu items, strong brand recognition among Asian immigrants and improved offerings will turn things around.

"We want to be a major fast-food player here," said Melvin Claros, U.S. operations manager for Jollibee Foods. "We might not be there right now, but we'll eventually get there."

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Expansion Plans

Claros said the chain, which plans to open two more California stores by year's end, soon would use Angus ground beef and bigger patties for its burgers. The company also has high hopes for a new sandwich named The Works, a $4.49, 1/3-pound burger with sweet onions, American cheese, mushrooms, bacon and pickles.

The company is counting on these and other improvements, including a new design at future stores, to fuel its expansion. Plans call for opening at least five stores a year for the next decade, including entry into the fast-food markets in Hawaii and Nevada.

Restaurant industry consultants and Jollibee officials agree that reaching a mainstream audience is key. Non-Asians make up less than one-third of Jollibee's customers, said Mike Navarrete, chief financial officer for Jollibee Foods. That inability to tap into a larger market has hurt sales, which are about $1.1 million per store, he said.

California also has higher wage costs than the Philippines, and as a result Jollibee's U.S. units have about one-quarter as many workers as the typical restaurant in the Philippines, Navarrete said.

With fewer workers to greet customers and pick up their trays after they finish their meals, service at the California restaurants isn't as good as in the Philippines, he said.

Jollibee's growth also has been stymied by the difficulty of finding good sites for new restaurants, company officials said. In some cases, they say, landowners have opted to lease locations sought by Jollibee to its bigger fast-food rivals.

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'Fast-Food Fatigue'

Like other quick-service operators, Jollibee also must grapple with what one analyst has called "fast-food fatigue." After years of downing burgers and fries, consumers increasingly are looking for fresher and more healthful alternatives. As fast-casual chains such as Panera Bread Co. and Baja Fresh sizzle, fast food is wilting, growing at just 1% to 2% annually, experts said.

That doesn't mean Jollibee lacks fans.

At a restaurant in Cerritos, Anamari Villamil, a 26-year-old respiratory therapist, downed two portions of spaghetti. The Chino Hills resident said she drove more than 45 minutes to eat at Jollibee, which she frequented as a high school student in the Philippines.

"We need one of these where I live," she said.

Her friend, Hazel Dumlao of Garden Grove, said eating at Jollibee feels "like you're in the Philippines, like you're back home."

Jollibee got its start in Manila in 1978, when entrepreneur Tony Tan converted a few ice cream parlors into fast-food restaurants. Borrowing from the Golden Arches, he adopted a red-and-yellow color scheme and his own version of Ronald McDonald: "Jollibee," a grinning, Tuxedo-clad bee.

Three years later, McDonald's Corp. entered Manila, with its sights trained on Jollibee. But Tan refused to buckle, focusing more on providing good service and tweaking food to local tastes, the company said. The result: Jollibee stung McDonald's. There are now 465 Jollibee outlets in the Philippines, versus 237 McDonald's.

Jollibee Foods, which includes Jollibee, Greenwich Pizza, Chowking and two other restaurant concepts, posted an $11.4-million profit on sales of $467 million in 2001, compared with an $18.2-million profit on revenue of $407 million the previous year.